No funds disbursed to Adani Colombo port project so far, assessing situation: U.S. Agency DFC

A year after it announced it would loan the Adani-controlled project for Colombo Port more than half a billion dollars, the U.S. International Development Finance Corporation (DFC) said that it is “continuing to assess the situation” and had not so far disbursed any of the funding promised. In response to questions from The Hindu about the impact of the indictments issued by the U.S. Department of Justice (DoJ) and Securities and Exchange Commission (SEC) last week, a DFC official said that the agency is still conducting its “due diligence” on the project in order to ensure it meets its “rigorous standards”.

The DFC statement, that appears to indicate that there is a reconsideration of the Adani Ports and SEZ (APSEZ) development of the Colombo Western International Terminal that it had endorsed in November 2023, came as the Sri Lankan government said it is taking the U.S. indictments “very seriously” and that a final decision on the project after an official report prepared by the Foreign and Finance Ministries is submitted. “We are expecting the report to come in very soon, and will be taking a decision after that,” said official spokesperson Nalinda Jayatissa, addressing the weekly media briefing in Colombo after a Cabinet meeting chaired by President Anura Kumara Dissanayake.

The cloud over the prestigious Colombo port project is the latest in a series of controversies over other international infrastructure and energy projects involving the Adani group, that has been accused of violating the U.S. Foreign Corrupt Practices law by allegedly bribing Indian officials more than U.S. $250 million for power contracts. In particular, the DFC’s announcement of a loan commitment of $553 million made in November 2023, had been cited by the Adani group and its backers as a mark of the company’s governance systems.

“We welcome the association of the DFC in funding the Adani project – and we see this as a reaffirmation by the international community of our vision, our capabilities and our governance,” Karan Adani, Director and CEO, APSEZ had said in a statement last year. In a note to clients on November 21, Adani-investor Florida-based GQG Partners had also cited the DFC backing for the project, saying that it found it “very surprising that the U.S. government would approve funding and partner in projects with parties that were under DOJ investigation.”

With the DFC now clarifying that it hasn’t disbursed any funding to the Adani group, it is unclear whether the Colombo port project will go ahead as scheduled. The Hindu attempted to contact the group as well as CWIT for a comment but did not receive a response. The Ministry of External Affairs also did not respond to questions about whether U.S. authorities had sought its cooperation in its investigation or in pursuing the prosecution of the Adani group chief and other officials named in the indictment.

Apart from the report under preparation in Sri Lanka, a Bangladesh court ordered a high-level enquiry into the purchase agreement for an Adani power supply project from a plant in Jharkhand executed by the previous Sheikh Hasina government, and Kenyan President William Ruto announced he was cancelling deals signed with the Adani group for energy and airport infrastructure in the past week. In addition, France’s Total group announced that it was putting further funding in the Adani Total Gas project on hold, while the Adani Ports’ operations of the Haifa port in Israel have faced headwinds over an unconnected labour dispute.

After the indictment by a Grand Jury in a New York court on November 20, U.S. officials said arrest warrants have been issued for Adani group CEO Gautam Adani and his nephew Sagar Adani for an alleged “bribery scheme” involving the Adani Green Energy group’s solar power company’s dealings with several Indian state governments.

When asked whether the DFC is now pursuing a full review of the project in light of the allegations, the DFC told The Hindu in written responses that it defers to the DoJ and SEC as the “lead agencies” in the matter.

“DFC continues to conduct due diligence to ensure that all aspects of the project meet our rigorous standards before any loan disbursements are made. To date, the allegations have not implicated Adani Ports & Special Economic Zones Limited (“APSEZ”), the entity involved in this project,” a DFC spokesperson said. The indictments name Mr. Gautam Adani directly for the transactions, who is the founder and chairperson of both the company involved in the DoJ investigation, Adani Green, as well as the company involved in the Colombo project consortium, Adani Ports and SEZs.

BACKGROUND

The Adani Group has two projects in Sri Lanka in the ports and energy sectors. After the Gotabaya Rajapaksa government, in early 2021, abruptly called off the trilateral project [India and Japan were partners] to build the East Container Terminal at the Colombo Port, Colombo offered the West Container Terminal project as a “compromise” to New Delhi and maintained that Adani Ports was the Indian government’s “nominee” to execute the project, adjacent to the China-backed Colombo International Container Terminals at the port.

In September 2021, Adani Ports signed an agreement with the Sri Lanka Ports Authority (SLPA) and Sri Lankan conglomerate John Keells Holdings, to jointly develop the terminal, pledging over $700 million in investment. Construction of the terminal began in late 2022. In 2023, the U.S. International Development Finance Corporation (DFC) came into the picture, announcing a $553 million-investment in the project. Meanwhile, sources told The Hindu that the first phase of construction of the terminal is nearly complete, and the terminal is preparing to receive its first ship in February 2025.

Adani Green’s wind power project in Mannar and Pooneryn towns in the island’s Northern Province has sparked controversy from the time it was approved, with political opposition, corruption watchdogs, and environmental groups raising questions over the apparent absence of due process, the lack of transparency, the possible impact on a key regional corridor for migratory birds. The project has been challenged at Sri Lanka’s Supreme Court, and the next hearing is scheduled in March 2025.

According to political sources in Colombo, the two projects were pitched by Indian interests as “key, large-scale investments” in a fragile economy that would give out a “positive signal” to the rest of the world, at a time when Sri Lanka is struggling to rebuild its crisis-hit economy. Colombo governments, too, appeared to welcome the investment.

President Anura Kumara Dissanayake and his National People’s Power [NPP] alliance won a significant mandate in recent elections, campaigning on an anti-corruption plank. Before the September presidential poll, Mr. Dissanayake, in a media interview, vowed to cancel the “corrupt” Adani power project if elected. Following his election, the government said it would “review” and “revisit” the project.